The answer may not be a straightforward one given the aspects concerning the acquisition of land on loans. You can buy land either by a personal loan or a home loan. While personal loans can be granted instantly provided you meet the eligibility criteria, home loans can take a fair while to get disbursed to your account. If time is not an issue, you can go on and check the overall cost, your affordability, tax benefits, etc, in each of the two loans. Read on to check the same.
Home Loan Comes at Lower Rates – But Does It Help You Save More?
As you know that personal loan comes at a higher interest rate in comparison to home loans. This might make you believe that you’ll end up paying more to the lender. Well, the Equated Monthly Installment would be more in the case of personal loans. But the interest outgo could be curtailed greatly using the personal loan. It’s because of the difference in the tenure of two loans. While personal loans can run for a maximum of 5 years, home loans are given for as long as 20 years. Although you can choose the loan tenure, most banks may not give you home loans for a very short tenure. They would most likely give you the loan for at least 15 years. Let’s understand the gravity of the matter using the example below.
Example – If you get the personal loan of ₹15 lakh to buy a land at a 13% interest rate, the EMI will be ₹34,130. You’ll pay total interest of 5,47,777 over 5 years. In contrast, the same ₹15 lakh will cost you an EMI of ₹14,992 and interest outgo of ₹11,98,511 if you get a 15-year home loan. The monthly obligations are ₹19,138 higher in a personal loan compared to the home loan option. But personal loan lowers your interest outgo by a massive ₹6,50,734.
So, it all boils down to how much you earn and what are the expenses you make. If you earn sufficiently high and can create space for the increased EMI even with the ongoing expenses, there’s nothing wrong with choosing the personal loan option. Otherwise, you can look for a home loan and pay in smaller installments.
Which of the Two – Personal Loan & Home Loan – Offers Tax Benefits?
There are no tax benefits with either of the two. But if you take a home loan to construct a home on the land you buy, you’ll be eligible for tax benefits. You can claim tax deductions once the construction of the house is completed.